On Thursday, February 25, 2016, the IRS published the revised Treasury Regulations for monitoring compliance with the Low Income Housing Tax Credit. This was published in the Federal Register, along with IRS Revenue Procedure 2016-15.
One of the changes involves how units are chosen for a Physical Inspection. The regulations provide greater flexibility regarding the minimum number of units an agency must inspect, including both physical and file inspections. It also gives an agency the right to forego the “same unit” rule, which required agencies to conduct both physical inspections and low-income certification reviews on the same units.
The minimum number of units that must be inspected is the lesser of 20 percent of the low-income units in the project or the number of units listed in the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart, which is found in the Revenue Procedure 2016-15. Prior to this regulation, the IRS set the minimum number of units to undergo an inspection to a minimum of 20% of all units in the project.
In the past, agencies were to conduct a physical and file inspection of the same unit. The IRS has now decoupled the physical inspection from the tenant file inspections, allowing a little more leniency in how the onsite inspection is completed.
The IRS regulation has also provided the state agencies an opportunity to use the REAC protocol when conducting a physical inspection as long as it satisfies the following, as stated in Revenue Procedure 2016-15.
• Both vacant and occupied low-income units in the project are included in the population of units from which units are selected for inspection;
• The inspection complies with REAC’s procedural and substantive requirements, including the use of REAC Uniform Physical Condition Standards inspection software;
• The inspection is performed by HUD REAC inspectors; and
• The inspection results are sent to HUD and reviewed and scored within HUD’s secure system without the involvement of the inspector, and HUD makes the inspection report available.
Many states are currently reviewing this material internally and making their own policy decisions. Please check with your state agency before making any changes.
References: Revenue Procedure 2016-15
NCSHA February Blog